Monday, June 25, 2012

Lack of inventory? It depends on which market.

For the past couple of months the real estate media has been screaming about the lack of inventory on the market.
However, all information has been tangled up in a lot of broker speak and dramatic hand wringing. My objective is to shake out the pertinent facts of the current state of the two markets which are rentals and sales. There is a strong connection between the two, however they are often treated as one in the same, which is incorrect because they are actually quite different.

First all I proclaim the following:
THERE IS NO LACK OF RENTAL INVENTORY.

When you do a search on Streeteasy for rentals in the downtown area, you will find 2,927 listings currently available for rent. Assuming that Streeteasy is accurate and these listings are still current, which it usually is, there seems to be an ample amount of rental inventory on the market.
It appears there is a lack of affordable apartments. There is a certain price point that renters are not willing to go over. As the articles below indicate that will not change anytime soon because landlords are jacking up rent as high as they can.The City of Sky-High Rent
The Lease Is Up, and Now, So Is the Rent

The end result is that people are trying to get more bang for their buck by getting out of Manhattan. As this article from the Real Estate Weekly has shown that a significant number of young professionals are looking for alternatives outside of Manhattan yet easily and quickly accessible to through public transportation. Developers are aware of this and are building up inventory to take advantage of it.

This lack of rental inventory in Manhattan is a complete illusion. The rentals are out there. They are just not affordable.

Back in 2004, an announcement was made at the Grunt's company that there was a huge lack of residential sales inventory on the market. Instead of selling, owners were taking advantage of low interest rates and turning their homes in ATM machines by engaging in a cycle of refinancing. This lack of inventory created a bottleneck even though it was a seller's market. Besides the fact that owners had no interest in moving, owners pondering a move realized they would be facing the same quagmire of low inventory and high demand that buyers were struggling with. Which is why seller's demanded such exorbitant prices because they knew buyers would be paying an arm and a leg for an apartment. In fact if a bidding war broke out, it was not uncommon for a seller back then to jack up the price to see who would be the last buyer standing.
The factors may have changed but one thing sellers have in common with the previous and current market is dealing with the unknown.

It is the same old song but it is being played by a different band.

This lack of inventory has also effected the commercial market and is the reason why this building is listed for 25 million dollars.
Back in 2007 when everything was imploding it was all about cash and getting as liquid as possible. 2012 is all about cash flow. People want returns on their money and the Facebook IPO debacle has shown that stocks are completely unreliable in that department. And right now a monthly check from a tenant is quite tantalizing.
Investors are not looking for the hottest thing on the market, all they want is a place to park their cash and get a decent return.
With the European economy speeding on a collision course with God knows what on the FUBAR highway, there is a vast amount uncertainty around us.

But let's focus on the obvious.
The cost of living in Manhattan is going up and most likely going to get higher because Albany has no plans on extending the property tax abatement program.
As I stated before in regards to the illusion of the lack of rental inventory, if this drought of renters continues, there is a possibility that that condo investors will scream uncle and get the hell out of the market. Why keep an asset that has become a liability especially in this economy? No cash flow? Than cash out.

If you are thinking of selling, this is your window of opportunity due to the lack of sales inventory and high demand. And there are plenty of all cash buyers out there so take advantage of this opportunity now. There is a strong possibility that there will be an influx of condo inventory coming onto the market this year so whatever leverage you have now will have greatly diminished.

What we all should be encouraged is that New York City, particularly Manhattan has currently shown to be the destination of choice for the flight of quality. Everyone wants to dump their money here. Let us hope that continues.

On a side note, as you all may have noticed I haven't blogged in quite sometime. In fact this is my first entry of the year. Like many of you, I have been going through my own trials and tribulations. Nothing serious, thank God. But these issues required my attention and I had to put blogging on the back burner.
So for now, I am going to be blogging when I can. I just want to say to all the readers out there, I appreciate you checking in on me.